Several years ago, I worked with a boutique hotel group that had just completed a multimillion-dollar upgrade across its property. They’d enhanced everything, from plush new bedding to energy-efficient climate controls. 

Their general manager was proud of the design, but what made the owners happiest was something far less visible: a cost segregation study that reclassified much of their investment into short-life assets eligible for bonus depreciation. That single step turned a multi-year payback into a massive first-year tax deduction, freeing capital for their next project.

In 2025, thanks to a major tax law change, this kind of acceleration has become even more powerful for hospitality properties. The return of permanent 100% bonus depreciation has rewritten the playbook for how hotels, resorts, and restaurants approach upgrades, expansions, and acquisitions. 

If you’re in hospitality ownership or operations, understanding how to leverage it (especially alongside cost segregation) can translate into significant and immediate cash flow.

Understanding Bonus Depreciation for Hospitality Properties in 2025

Bonus depreciation allows you to deduct a large percentage (now, in many cases, 100%) of the cost of qualifying property in the year it’s placed in service, instead of spreading that deduction over its normal recovery period.

The One, Big, Beautiful Bill Act (OBBBA), passed on July 4, 2025, reinstated permanent 100% bonus depreciation for qualifying assets purchased and placed in service after January 19, 2025. This change eliminates the prior phase-down schedule and creates a stable, long-term environment for capital expenditure planning.

For hospitality operators, this means that everything from furniture to kitchen equipment to certain building improvements can now be fully deducted in the year of service, turning potential multi-year deductions into immediate reinvestment power.

Why Hospitality Properties Are in a Prime Position

The nature of hospitality operations makes them particularly well-suited for bonus depreciation. Properties often include a mix of assets that meet the under-20-year requirement, such as:

• Restaurant and bar equipment
• Guest room furniture and fixtures
• Security and surveillance systems
• Decorative and functional lighting
• Pool, spa, and fitness equipment
• Landscaping and exterior amenities

Many interior upgrades also qualify as Qualified Improvement Property (QIP), which carries a 15-year recovery period and is bonus-eligible. To qualify, improvements must be made after the building was first placed in service and must be strictly interior improvements. QIP does not include enlargements, elevators, escalators, or structural framework. Eligible examples often include interior redesigns, new flooring, wall finishes, and lighting systems.

Given the frequency of capital investments in hospitality, applying bonus depreciation for hospitality properties can significantly enhance after-tax returns year after year.

Cost Segregation: Unlocking the Full Potential of Bonus Depreciation

Pairing bonus depreciation with a cost segregation study transforms it from a valuable deduction into a powerful cash-flow strategy. Cost segregation reclassifies portions of a building or improvement project into shorter recovery periods, often 5, 7, or 15 years.

Once reclassified, those components qualify for immediate 100% expensing under current bonus depreciation rules.

In one notable case, a hotel owner spent just over $10,000 on a cost segregation study and uncovered enough reclassified assets to produce $1.8 million in first-year tax savings. Without that reclassification, the deductions would have been spread over decades.

With permanent bonus depreciation, that acceleration is now available without the time pressure of past phase-out rules, making cost segregation even more valuable.

Timing Your Investments for Maximum Impact

Under the 2025 law, eligible assets must have been placed in service on or after January 20, 2025, to qualify for permanent 100% bonus depreciation.

Investments completed before this date may still qualify for bonus depreciation, but under transitional percentage rules. Careful planning of acquisition and renovation timelines ensures that you meet the more favorable threshold.

A restaurant group I advised recently staggered its kitchen equipment upgrades so that the largest investments fell just after the January 20, 2025, threshold. That timing alone increased their immediate deduction by hundreds of thousands of dollars compared to if the work had been completed weeks earlier.

The permanence of the rule also allows for operationally driven timing. You can prioritize property readiness, market conditions, or cash-flow needs rather than rushing solely for tax deadlines.

State-Level Considerations for Bonus Depreciation

While federal rules are now permanent, many states do not conform to bonus depreciation and require add-backs on state returns. For multi-state hospitality operators, this can create mismatches between federal and state taxable income.

To avoid surprises, work with your tax team to model both federal and state impacts before finalizing large capital projects. In some cases, it may be worth structuring investments to optimize for both.

Combining Bonus Depreciation with Other Tax Strategies

When integrated into a broader tax plan, bonus depreciation for hospitality properties becomes even more potent:

• Real Estate Professional Status (REPS): Allows qualifying owners to use depreciation to offset ordinary income, not just passive income.
• 1031 Exchanges: Reset property basis through an exchange, opening the door to new bonus depreciation opportunities.
• Opportunity Zone Investment: Pair front-loaded depreciation with long-term capital gains deferral.

Strategically layering these tools can dramatically reduce taxable income and improve investment returns.

Step-by-Step Action Plan for Hospitality Owners

To capture the full benefit of bonus depreciation:

1. Identify projects: List all recent and upcoming property purchases, expansions, or equipment upgrades.
2. Commission cost segregation studies: Reclassify eligible assets for immediate expensing.
3. Track placement-in-service dates: Ensure alignment with the January 20, 2025, threshold.
4. Model federal and state impact: Prevent unexpected state-level adjustments.
5. Integrate with other strategies: Combine with REPS, 1031, or Opportunity Zone planning where relevant.
6. Maintain strong documentation: Keep engineering reports, invoices, and workpapers for compliance and audit defense.

Locking In Hospitality’s New Depreciation Edge

Permanent 100% bonus depreciation gives hospitality owners a rare chance to turn capital investments into immediate tax savings, and pairing it with cost segregation can push those savings to their highest potential. With the right strategy, upgrades that once paid off over decades can now free up capital in year one, fueling faster growth, debt reduction, or reinvestment.

For those ready to capture the full advantage of bonus depreciation for hospitality properties, RE Cost Seg brings the engineering precision and tax expertise to ensure every qualifying asset is documented, defensible, and optimized for maximum return.